Question

With rise in price from ₹ 8 to ₹ 14 , total expenditure on the commodity rises by 40% and becomes ₹1,120. Calculate price elasticity of demand. Also, indicate whether demand. Also, indicate whether demand is elastic or inelastic.​

Answer 1

Explanation:

p= 8

p1 = 14

q=. 800

q1 = 1120

Ed = (∆q/∆p)(p/q)

∆q = (q1-q)/q×100

= (1120-800)/800×100 = 40

∆p = (p1-p)/p×100

= (14-8)/8×100 = 75

Ed = 40/75×8/800

ed = 0.005 mean less than 1

demand is inelastic

Answer 2

Answer:

calculation of original expenditure

let original expenditure be x

given,

new expenditure=1120rs

also given

x + 40% of x = 1120

x+40x/100=1120

140x=112000

therefore, x or original expenditure=800

now,

price elasticity of demand=∆q/∆p×p/q=-20/6×8/100=(-)0.267

hence, Ed=(-)0.267 [demand is less elastic as Ed<1]